DIY industry benefits from self-improvement

Home Retail Group(HOME)had a torrid time after the recession. With Argos struggling for several years, it was relying on Homebase to keep growing. However, the tide has turned and Argos has become one of the most promising brands on the high-street, while Homebase is suffering in a challenging market.

To ensure some security, Home Retail is revamping Homebase. It admits in its recent half-year results that the DIY chain suffers from "inconsistent store operating standards and a large estate with low sales densities that result in a challenged financial model."

That's why there will be a significant reduction and streamlining of the business - 30 stores are expected to close in the next financial year, with the aim of reducing its estate size by 25% by the end of FY2018 (roughly 80 store closures).

This is anticipated to result in a smaller, more secure company.

However, analysts at Citi Research believe that this could result in significant costs to an already struggling business, noting that there are "only 65 Homebase stores coming up for lease expiry or renewal over the next three years." This could result in "a high degree of paid lease exits."

UBS is of a similar mind-set, stating that "gross margins could remain down given clearance costs from closures."

The rapid growth of online retailing in the home improvement sector seems to be the driving force behind the store closures. With consumers now more inclined towards a simpler shopping process - the click and collect method - it is becoming unnecessary to maintain warehouse sized stores. This already seems to be influencing sales at Homebase, with the first-half report highlighting a 46% increase in mobile device visits, partially helped by increase in use of the "reserve and collect" scheme. This resulted in a 12% "multi-channel" sales increase, now accounting for 7% of Homebase total sales.

But it is not just Homebase that is suffering from shifting consumer preferences. Kingfisher's(KGF) B&Q also has to reduce its estate portfolio, although it plans to reduce store size rather than quantity through its "Right size Right place" scheme. Parallel to this plan will be an increased emphasis on "Click, Pay and Collect", similar to Homebase's new strategy.

Travis Perkins'(TPK) Wickes brand is also downgrading its estate, as it too looks to embrace the online revolution.

It seems to be Kingfisher's Screwfix is the only DIY home improvement retailer to excel at the moment, announcing 23% growth in half-year sales. However, due to its appeal to smaller tradesmen, it is difficult to analyse how much of its success is down to the public's shopping preferences.

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DIY industry benefits from self-improvement